The Bitcoin Foundation has received a cease-and-desist letter from the California Department of Financial Institutions, which oversees banks, credit unions, and other financial organizations operating in the state.

Jon Matonis, who is a board member at the Foundation, revealed the letter on Forbes. The agency charges Bitcoin Foundation with allegedly "engaging in the business of money transmission without a license or proper authorization."

If they found to be in violation of the California Financial Code, the foundation could be fined up to $2,500 a day per violation, in addition to criminal prosecution. Convictions under the federal statute are punishable by up to 5 years in prison and a $250,000 fine.

Bitcoin doesn't have any kind of central regulatory authority, and trading takes place through Mt. Gox or other exchange floors. So, California’s decision to send a money transmitter warning to the Bitcoin Foundation is a Washington, D.C., nonprofit, makes no sense.

"One activity that the foundation does not engage in is the owning, controlling, or conducting of money transmission business. Furthermore, that activity would also be against the original charter of the foundation." Jon Matonis said.

In March, mobile payment service Square received a cease-and-desist order from the state of Illinois over allegations that it violated its Transmitters of Money Act.